B2B collections in LATAM: negotiate, mediate, settle

If you are dealing with B2B collections in Latin America, you may run into nonpaying debtors, commercial or financial issues the debtor may have, and local situations in Latin America that may considerably complicate succesfull collection.

In order to deal with such situations, change your mindset to negotiations, mediation and settlement.

Negotiations in B2B collections in Latin America

My advice is to be prepared to negotiate. A trigger to negotiate is often the lack of alternatives. Debtors may otherwise take the stand that they will not pay, and the only way to enforce payment, is to start legal proceedings. The latter is a rather unattractive (and sometimes, practically impossible) alternative. This will be discussed in more detail below. Please read the following articles about negotiation in international debt collection and settlement negotiations in Latin America for more insight.

Mediation in B2B collections in Latin America

Another alternative is to look for mediation in Latin America, especially if the amount owed is substantial. An independent third party will in such case be appointed as mediator between creditor and debtor. For more thoughts on mediation in international debt collection, please read this previous article.

Looking for a settlement

The aim of negotiations and mediation with the debtor in Latin America is reaching an amicable settlement. An agreement between creditor and debtor that both parties can live with. A settlement agreement may consist of a one-time payment as full and final settlement, or a payment plan, or a combination. Sometimes, continuation of the commercial relationship between the parties is also agreed, which can be continuation of import / export of delivery of services, whereby for each future payment (usually on a pre-payment basis) part goes towards payment of the debt.

Avoid legal proceedings in Latin America

The recommendation is to at all times avoid legal proceedings in Latin America. Generally speaking, as legal systems and requirements between countries differ, sometimes substantially, cross border files are not sufficiently solid in order to enforce payment by means of legal proceedings. Also, legal may be expensive and with little likelihood to collect, the creditor may end up with high legal bills which cannot be recovered from the counter party, the debtor.

In dealing with a debtor in Latin America, be prepared to negotiate, to mediate, and to settle. Avoid legal proceedings because of its complexity and costs.

If you are doing international business in Latin America and you are interested in learning more on B2B collections, please reach out to Cobroamericas, on Linked-In or follow us on Twitter.

To participate in conversations about debt collection in Latin America please join the Linked-In Group Debt Collection Latin America.

David Zannoni

International Debt Recovery: Mediation

When negotiations about an international debt have not lead to an agreement, the parties may end up in a situation where either the international debt remains unsettled (and practically, the debt will become a write off for the claimant), or the claimant will have to start legal proceedings and go to court over the claim.

Debt unsettled or legal proceedings? Think twice

mediation and debt recoveryThese alternatives are rather unattractive: the creditor will not like to remain with an unpaid or unsettled debt, and eventually, a write off, and the debtor might not like this situation either as it stands in the way of recovering the commercial relationship with creditor and it may harm debtor’s reputation in the business. And none of the parties will look forward to legal proceedings given the costs and time involved.

Mediation as alternative in international debt recovery

A serious alternative is mediation: provided that both parties agree, creditor and debtor appoint an independent mediator who will assess the situation regarding the international debt and work towards a mutually acceptable settlement agreement. Recommendable is to appoint a mediator with broad experience in and knowledge of international debt recovery.

The mediation process: sessions with creditor and debtor

mediation debt recoveryDuring the mediation process, the mediator will have joint sessions with creditor and debtor, and / or separate sessions with each of them, to understand the situation regarding the international debt or the dispute from each side’s point of view, and to learn about what each of the parties propose as solutions for the situation or the dispute. The sessions can with today’s technology, and depending on the size of the international debt, be organized in person or by teleconference.

Working towards a settlement for the international debt

mediation debt collectionThe next stage is what is defined in mediation literature as “caucuses”: the mediator will start separate sessions and discussions with each of creditor and debtor to learn about their core interest, which elements of a settlement would be acceptable, and which are “no-go’s” or “deal breakers” for either creditor or debtor towards settlement of the international debt. The mediator will subsequently go back and forth between creditor and debtor with ideas, suggestions and proposals with the aim of finding a mutually acceptable settlement agreement. The mediator’s leverage here is that, although a settlement agreement will never 100% satisfy any of the parties, the alternatives – an unsettled international debt and loss of the commercial relationship and harm to a business reputation, or expensive and time consuming legal proceedings, are even less tempting.

Consider mediation if all amicable options run out

Have you considered mediation as an alternative during international debt recovery, when your debtor is not paying, or if there is a dispute between debtor and creditor? If all negotiations between creditor and debtor fail, mediation might be the only serious or costs efficient alternative to an unsettled international debt (and at some point, a certain write off for the creditor) or legal proceedings.

If you are interested in learning more about mediation solutions for international debt recovery, please connect with Cobroamericas on Linked-In or follow us on Twitter.

To participate in the conversation about debt collection in Latin America please join the Linked-In Group Debt Collection Latin America.

Leverage In International Debt Collection

Leverage can be vital to achieve success in international debt collection. The existence of leverage is often a vital ingredient to negotiate payment or settlement of outstanding debts and mediation in international claims.

Leverage can be defined as “influence or power used to achieve a desired result”. What kind of leverage may a creditor, its legal representatives or a debt collection agency have when collecting an international, commercial debt?

Existence of a commercial relationship

international debt collection leverageIf the international debt is between two businesses, both the creditor and the debtor may have an interest in maintaining the commercial relationship and solve any financial issues between them. This means that the debtor may be willing to pay and the creditor may be in a position to agree to a settlement of the debt, if necessary. We consider the existence of a commercial relationship and the importance of maintaining the commercial relationship as probably the most important leverage the side of the creditor may have during an international debt collection process.

Legal alternatives for payment of international debt

international debt collection legal actionAnother important leverage the creditor may have is the alternative to start legal proceedings against debtor and to legally enforce payment of an outstanding debt. In reality though, often this alternative may be relative as legal alternatives for international debts are either limited, and / or time-consuming, and / or expensive. On the other hand, the fact that legal proceedings are time consuming and expensive also goes for the debtor, and this in itself may be sufficient leverage to push debtor to pay or except settlement.

Personal relationships between creditor and debtor

international debt collection relationshipsNot unusually, creditor and debtor have been in business together a while and personal relationships have been established across departments and management. This may be another type of leverage the creditor may turn on when collecting a debt internationally. Depending on the size of businesses, there may be several people involved in the business relationship between creditor and debtor, and people may feel committed and may be willing to continue their personal relationships and avoid any personal issues as a result of the outstanding international debt. This leverage can also be used when attempting to collect an international debt, by involving in the negotiation people with a personal interest in the business relationship and personal relationships between them.

Importance of the industry reputation of debtor

international debt collection reputationThe importance of debtor’s industry reputation may also mean leverage for the creditor, when collecting an international debt. Debtor may feel that the existence of the international debt, and disruption of the commercial relationship because of the debt, if it becomes known within debtor’s industry, would damage debtor’s reputation. Some industries have warning lists for bad payers. The creditor, its legal representatives or its debt collection agency should definitely use this leverage, if present.

Leverage in international debt collection

In this post we discussed the important of leverage during negotiations over an international debt. We mentioned the following types of leverage: the existence of a commercial relationship, legal alternatives to enforce payment, personal relationships between creditor and debtor, and the importance of the industry reputation of debtor.

If you are interested in learning more on the subject of leverage in international debt collection, please connect with Cobroamericas on Linked-In or follow us on Twitter.

To participate in the conversation about debt collection in Latin America please join the Linked-In Group Debt Collection Latin America.